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Reinsurance Claims

SUMMARY JUDGMENT GRANTED FOR REINSURER DUE TO LACK OF PRIVITY WITH DIRECT INSURED

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Plaintiff Backups Plus Computer Services, LLC (Backups) owned hard drives which failed. Plaintiff GF&C Holding Company (GF&C) was a client of Backups and stored its data on Backup’s servers. After the failure of the hard drives, Backups and GF&C both submitted claims to Harford Casualty Insurance Company (Hartford), which had issued policies to both companies. Hartford submitted a claim to its reinsurer, Hartford Steam Boiler Inspection & Insurance Company (HSB). HSB then engaged an independent analyst, LWG, to examine the hard drives and determine the cause of the failure. LWG determined that the damage was the result of normal wear and tear, not a covered risk under the policy. HSB advised Hartford that it would not pay a claim under the reinsurance agreement, and Hartford denied the claims submitted by Backups and GF&C.

Plaintiffs sued both Hartford and HSB. The district court granted the reinsurer’s motion for summary judgment on all claims. The court noted that plaintiffs’ counsel acknowledged at oral argument that there was no privity between the plaintiffs and the reinsurer. Consequently, there was no contract that could be breached and no implied covenant of good faith and fair dealing or bad faith. GF&C Holding Co. v. Hartford Casualty Insurance Co., Case No. 11-236 (USDC D. Idaho March 15, 2013).

This post written by Rollie Goss.

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INSURER PREVAILS IN BREACH OF CONTRACT ACTION AGAINST REINSURER IN DISPUTE REGARDING ASBESTOS BODILY INJURY CLAIMS

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ACE Property & Casualty Insurance Company, as successor in interest to Central National Insurance Company of Omaha, sued Global Reinsurance Corporation of America for breach of a facultative reinsurance certificate issued by Global’s predecessor in interest reinsuring a portion of an umbrella policy issued by Central National. Central National’s insured incurred significant asbestos bodily injury claims that Central National and other umbrella insurers settled. ACE brought suit for breach of contract and declaratory judgment after Global refused to honor remittances submitted by Central National under the reinsurance certificate.

Global asserted several defenses to ACE’s claims. First, Global asserted that a substantial part of Central National’s settlement included defense costs where the policy arguably did not cover such costs. Citing the follow-the-fortunes doctrine, the court rejected this defense, holding that Global failed to meet its burden of demonstrating that Central National’s payment of defense costs was not arguably covered by the policy. The court similarly discarded Global’s argument that, under the language of the reinsurance certificate, Global was only required to pay defense costs where an indemnity payment had been made, holding that the reinsurance certificate must be construed in keeping with underlying policy language which included no such restriction. The court refused to accept Global’s argument that an endorsement extending the expiration date of the certificate created a separate $10 million retention limit for Central National. After a bench trial, the court entered judgment in ACE’s favor. ACE Property & Casualty Insurance Co. v. Global Reinsurance Corp. of America, Case No. 11-2838 (USDC E.D. Pa. Mar. 31, 2013).

This post written by Ben Seessel.

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REINSURANCE DISPUTE SETTLEMENTS

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Following are summaries of three recently announced settlements of reinsurance-related disputes.

Mortgage insurance dispute – This class action suit alleged violations of the Real Estate Settlement Procedures Act (“RESPA”) for acceptance of “kickbacks” from mortgage insurers under “captive reinsurance agreements” in exchange for the referral of business. Wells Fargo has agreed to pay roughly $12,750,000 to class members, which includes over $4,000,000 in attorneys fees and litigation costs and a case contribution award of $7,500 for each named plaintiff as approved by the court. Liguori v. Wells Fargo & Co., Case No. 08-479 (USDC E.D. Pa. Feb. 7, 2013) (final approval Order and Order approving attorneys’ fees, costs and class representative incentive payments).

Life insurance retrocession – Swiss Re and Berkshire Hathaway announced the settlement of a dispute over a life retrocession agreement entered into in 2010 by allowing Swiss Re to recapture certain treaties from the portfolio of term life business in return for a payment of $610 million from Berkshire Hathaway, and a reduction in the assumption of losses by Berkshire Hathaway from $1.5 billion to $1.05 billion. The payment is expected to result in a gain of approximately $100 million for Swiss Re in the first quarter of 2013. See Swiss Re’s press release.

Workers’ compensation reinsurance – In this dispute, members of a pool for workers’ compensation reinsurance sought $3.1 billion from AIG for underreporting premiums, which caused other pool members to bear a disproportionate share of the pool’s losses. The district court approved a class settlement for $450 million, which Safeco challenged on appeal, claiming that the settlement did not adequately compensate it for individual claims against AIG. The Seventh Circuit dismissed the appeal based on Safeco and AIG’s representations that they have reached an additional settlement regarding the individual claims. Judge Posner dissented, finding dismissal to be premature since the terms of the additional settlement were not disclosed to the court. Safeco Ins. Co. of Am. v. Am. Int’l Group, Inc., No. 12-1157 (7th Cir. Mar. 25, 2013).

This post written by Abigail Kortz.

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FEDERAL COURT RECONSIDERS SUMMARY JUDGMENT DECISIONS IN FEDERAL ACTION BY REINSURER AGAINST RETROCESSIONARE

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We reported earlier on decisions rendered on the parties’ cross motions for summary judgment in an action brought by reinsurer Munich Re against retrocessionaire ANICO relating to retrocessional cover issued by ANICO to Munich Re in connection with Munich Re’s reinsurance of an Everest National workers’ compensation program. The federal court has reconsidered two of its summary judgment decisions and affirmed one and reversed one of its prior rulings. The court affirmed that ANICO had failed to present sufficient evidence to create a genuine issue of material fact as to whether Munich Re’s late notice of claims prejudiced ANICO by affecting ANICO’s decision to commute liabilities to Max Re. The court, however, reversed itself by holding that ANICO had established that sunset provisions in the Munich Re-ANICO agreements precluded certain claims submitted after December 31, 2007 and that there were genuine issues of material fact regarding whether claims submitted after December 31, 2008 were similarly barred. Munich Reinsurance America, Inc. v. American National Insurance Co., Case No. 09-6435 (USDC Mar. 28, 2013).

This post written by Ben Seessel.

See our disclaimer.

TRUSTMARK NOT LIABLE FOR FAILING TO OBTAIN SETOFF IN LONG-RUNNING BATTLE OVER RETROCESSION AGREEMENTS

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A Connecticut federal court put to bed a case which started out as a petition to confirm an arbitration award between reinsurer and retrocessionaire, but “transmogrified over the years to become the antithesis of the speedy, inexpensive dispute resolution process that the Federal Arbitration Act (‘FAA’) intends.”

Trustmark and Arrowood were parties to certain retrocession agreements. Trustmark disputed its payment obligations and submitted the dispute to arbitration. After the arbitration panel found that Trustmark was not responsible for some $9.4 million of disputed payments, Trustmark petitioned the court to confirm the award. The court confirmed the award in 2003. Some three years later, Arrowood moved for contempt, alleging Trustmark had an obligation arising from the Court’s order to pursue set offs on Arrowood’s behalf, and that it failed to do so with regard to certain insolvent insurers. Ultimately, the Court kicked the issue back to the panel, which found that Trustmark may have an obligation to pay Arrowood the $9.4 million, if it was unsuccessful in pursuing payment from the insurers, but that the factual issues that would determine that issue were beyond the scope of the arbitration. Thus, the parties went back to court, and built an evidentiary record on the issue of whether Trustmark adequately fulfilled its duties to pursue setoff on Arrowood’s behalf. Accepting the factual record, but not the recommendations of the magistrate who handled the hearings, the Court denied Arrowood’s motions for enforcement and contempt. Arrowood Indmenity Co. v. Trustmark Insurance Co., No 3:03-cv-01000 (USDC D. Conn. Mar. 29, 2013).